How To Build And Maintain Your Credit Score

A pink piggy bank

There are so many benefits to having a good credit score, including enjoying a much lower interest rate on your loans and credit cards. A great credit score will also allow you to save money in other areas, including security deposits, insurance, new utilities, and cell phone service, to name a few. Using your credit responsibly will help you to maintain that great credit score.

If you’re looking for ways to learn how to build your credit score, read on to learn about the importance of building your credit.

Information Matters

The more you know and understand what goes into the creation of your credit score, the easier it will be for you to maintain a good score. First off, it’s important to know there are five key items of information that are used to calculate your credit score. These are:

  • Level of debt
  • Credit age
  • Mix of credit
  • Payment History
  • Recent credit

Some items do not affect your credit score. These include your checking account being overdrawn and your utility payments being late or on time.

A tipped jar of coins

The following elements can help you to build and maintain that precious and elusive credit score.

1. Pay Your Bills On Time

This includes all your bills, not just the loans and credit cards. While there may be specific bills that don’t get reported directly to the credit bureaus when paying them on time regularly, they can end up on your permanent credit report if you do happen to fall behind in your payments.

Even something as small as a library fine can wind up on your credit report and negatively affect your credit, which can then be sent to collection agencies. Make sure to continue to pay all your bills on time so that you can maintain that solid credit score. Further, this is also very valuable when looking at how to build your credit.

2. Keep Your Credit Card Balances Low

The higher the balance on your credit card in relation to your actual credit limit, the worse your credit score will get. When looking at ways of how to build your credit score, know that your combined credit card balances should be within 30 percent of your combined credit limits to maintain that great credit score. For example, that would be $300 on credit cards that carry a combined limit of around $1000.

Further, charging more than thirty percent of your credit limit comes with risks if you plan to pay off that balance when the billing statement comes at the end of the month. Card issuers usually will report the balance on your credit card when your statement is closing, so that will be the number reflected on your credit report. Another way to build your credit is to keep tabs on your accounts online and then pay enough to reduce the balances to less than that golden number of thirty percent just before the billing month closes out.

3. Don’t Close Out Your Old Credit Cards

It may sound illogical to keep an empty credit card balance open. However, your credit card issuer will stop reporting to the credit card bureaus. And when you are looking for ways of how to build your credit score, the credit scoring formula places less weight on inactive accounts. So after ten or so years, the credit bureau will end up removing the closed account’s history from your report, which will cause your credit score to drop.

4. Manage Your Debt

Credit card balances are only one of a few ways your credit score is influenced. Loan balances and credit lines also impact your level of debt. Having too much debt can cost you major points on your credit score. Conversely, the lower your debt, the easier it will be to build and maintain your credit score.

5. Limit Applications For New Credit

When applying for a new credit card or loan, it can negatively impact your score. So before doing so, make sure you are only applying for credit when it is truly necessary. Opening a new account also lowers your average credit age.

6. Watch Out For Identity Theft

You may be doing everything right but still, have a ding to your credit. This may be because of identity theft. Make sure to monitor your credit report. Errors can end up on your report and lead to a drop in your credit score. Make sure to identify theft and credit card fraud. Catching these things early can make a huge difference. Definitely keep this in mind as you continue to pursue ways to build your credit score.

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